Yesterday, I wrote a short article about Royal Caribbean President Adam Goldstein selling 2,181 shares of RCL cruise stock earlier this week at an average price of $36.80, for a total value of $80,260.80. Cruise executives buying and selling their company's own stock is interesting to me as an indicator into their true thoughts about the direction of their business' future.
That being said, an cruise executive's sale of only $80,000 worth of stock doesn't say much. $80,000 may pay the annual wages of a dozen RCL utility cleaners but it's pocket change for a cruise line president. Goldstein still owns 335,654 shares of the company’s stock worth over $12,350,000.
But today Forbes reports that Royal Caribbean CEO Richard Fain purchased 26,800 shares of RCL stock which, at a price of $36.82 a share, turns out to be $985,776.
As Forbes writes: "company’s own top management tend to have the best inside view into the business, so when company officers make major buys, investors are wise to take notice."
RCL’s low point in its 52 week range is $24.16 per share. Its 52 week high is $38.62.
So CEO Fain is buying near the top of the chart. Seems risky to me.
As we mentioned this week, research firms are split on RCL's stock. One analyst gave the stock a "sell" rating, nine analysts assigned a "hold" rating and ten issued a "buy" rating. RCL currently has a consensus rating of “hold” and a consensus target price of $40.21.
Travel Weekly quoted Fain at the cruise line's second-quarter earning call last week. He said that despite the “unrelenting pressure of a deluge of negative publicity” on the cruise industry, things are looking up. Mr. Fain said the company is overcoming what he called the "CNN effect” of negative media scrutiny on things like highly publicized cruise ship fires that have occurred this year.
Royal Caribbean suffered a serious fire to its Grandeur of the Seas. And just last month, it's subsidiary brand Pullmantur's Zenith suffered an engine room fire which disabled the ship which needed to be pulled by tugs to back to shore.
Royal Caribbean is also suffering from the spill-over effect from the negative publicity caused by Carnival's Costa Concordia disaster and the Triumph's infamous "poop cruise," in addition to other Carnival cruise ship mishaps.
Does Mr. Fain know something that the analysts and the public doesn't know? Or this really a big calculated bluff to prime the pump of positive thinking?
I am not too sure that I would bank on a more positive public perception of the cruise industry developing naturally. The "CNN effect" is real. In my opinion, the images broadcast by CNN are a lot more persuasive and powerful than the positive musings of a hopeful cruise executive.
Plus there's a couple of things to keep in mind. There are increasing cut backs in RCL officer and staff salaries and crew pay coupled with an increase in their responsibilities which are deteriorating morale on the ships. Some of the tips which formerly went to the RCL cabin attendants and waiters are being channeled away from the crew to the company's income stream and destroying the crew's attitude in the process. And the MLC will come onto effect next month, restricting crew member working excessive hours, which may increase RCL's costs, restrict the cruise line's historical exploitation of its crew, and push its profit margins down.
RCL's cost cutting measures helped it to squeeze out a profit this past quarter, but it was under $25 million on gross revenues of $1.88 billion. How much more can RCL cut from the already overworked and underpaid crew?
And no cruise executive pumping up a stock price would dare mention Senator Rockefeller's announcement last week that he intends to introduce legislation to take away the loopholes in the U.S. tax code which permits the cruise lines to avoid U.S. taxes on its foreign flagged cruise ships.
Are brighter days ahead for RCL and CEO Fain's newly acquired 26,800 shares?
Maybe. Maybe not. But one thing is certain. All it will take is for one cruise ship to suffer another engine room fire for the "CNN effect" to send the RCL stock price plummeting south.
July 31 2013 Update: Watch List News reports that Royal Caribbean Cruises' President Adam Goldstein "dumped 16,717 shares of the stock on the open market in a transaction that occurred on Tuesday, July 30th. The stock was sold at an average price of $37.20, for a total value of $621,872.40."
Top: Royal Caribbean Press Center
Bottom: Janeeva Russell / The Freeport Times / AP